The Cheapest PBM Pricing Option

When it comes to using a PBM, there are essentially two types of pricing options – Per-Diem Pricing and Fee-for-Service Pricing. So how do we choose between the two? Most hospices end up choosing the cheapest option. So what is the cheapest PBM pricing option?

I promise this isn’t one of those articles that you read and then still don’t have an answer to your question. By the end of this quick read, you will have your answer. But before I give you the answer, let’s start with Pros and Cons of the two pricing options for hospice PBMs.

Per-Diem Pricing

The Pros

1. You have a concrete number to work with. This makes it easier to plan how much your pharmacy cost will be every month.
2. You have a very limited formulary. A medical director without a strict formulary can be the bane to your drug cost savings. 
3. You have consistency for your nurses and staff. On Per-Diem Pricing models, the whole goal is to stay within formulary. This makes everything black and white for your team. 

The Cons

1. You pay no matter what. Even if you have several patients on service that are only on very cheap medications, you will still be paying the agreed Per-Diem. In other words, you save money sometimes, and lose money sometimes.
2. Non-formulary drugs or services are going to cost you. If you have a patient on a couple non-formulary meds, you end up paying the per-diem AND you also have to pay extra for the non-formulary meds.
3. You get a false sense of your PPD (Per Patient Day) Cost. Just because your Per Diem Price is $9 (for example) doesn’t mean your PPD is $9. Don’t forget to include the cost of the non-formulary drugs and services when calculating your PPD.

Fee-for-Service Pricing

The Pros

1. You only pay for what you use. Whether the drug is formulary or non-formulary you pay for it all the same. Likewise, If you don’t order any prescriptions for a patient during their time with your hospice, the pharmacy cost for that patient is $0. 
2. You have more options for drug therapy. There are no price penalties on any drugs that your hospice chooses for a patient. This flexibility can result in better patient care. 
3. You have better data of where your money is being spent. Every month you will see a bill with all of your hospice drugs and how much they cost.

The Cons

1. You don’t know your pharmacy cost. Since it depends on what meds the patient is on and what pharmacy they used, you won’t know until the end of the month when you get the bill. 
2. You have patients on too many medications. With no price penalty for non-formulary drugs, it is natural to not care as much about cutting back on the number of meds a patient is on. Especially when your medical director is the one prescribing all of them. 
3. Your drug cost is at the mercy of your Medical Director. Medical Directors don’t typically think about price as a reason to prescribe a med. With “free-reign” in regards to prescribing, it’s only natural to order the most expensive drug because it is the “most effective”. 

What Is The Cheapest PBM Pricing Option?

Now that we have covered the pros and cons of Per-Diem Pricing and Fee-for-Service Pricing, I will tell you which option is cheaper for your hospice. The Per-Diem Pricing option is definitely the cheapest option in a perfect world. This is why so many hospices seek this type of pricing model. But in order for it to work and be the cheapest option, the hospice must never (and I mean never) go outside of the formulary. In a perfect world, Per-Diem Pricing is the obvious choice. However, hospice is not a perfect world and you will definitely end up going off formulary which makes this option very quickly not the cheapest anymore.

Let’s say you are the one-in-a-million hospice that has the discipline to stay 100% within the formulary. That is great! If you have that kind of discipline, then definitely go for the Per-Diem pricing model because you’ll lock in you cost PPD and save money.

But, I have never known a hospice to perfectly stick to their formulary which is why in reality the Fee For Service pricing model ends up being cheaper. The Fee-For-Service model allows more flexibility and forgiveness for going off formulary which limits the fees charged by your PBM. We don’t live in a perfect world. Your hospice will go off it’s formulary. And when it does, it’s better to be on a Fee-For-Service pricing model.

The Per-Diem Pricing is the cheapest PBM pricing option in a theoretical hospice world. But this is not the world we live in. I would never recommend ANY hospice to be on a Per-Diem Pricing Model. Don’t fall for the trap of paying for meds you may or may not use just because $9/patient/day sounds great. You will end up paying much more than $9/patient/day. Do yourself a huge favor and choose the Fee-for-Service Pricing. It IS the cheapest option for ANY real hospice in our real world.